How do I use watchlists to spot opportunities?
The watchlists provide a short list of high momentum stocks, both bullish and bearish, that are potentially continuing within strong trends or pulling higher out of basing patterns or falling from distribution areas.
In conjunction with these watchlists I use various discretionary chart patterns to identify low risk opportunities. Unlike the Premium Portfolio service these patterns cannot be programmed into a computer. However, by using correct trading principles I am are able to create an edge over the longer term. Being a discretionary trader allows one to adapt to market conditions and trade in both bull and bear markets.
You may have read the book or even heard the intriguing story about a young ballroom dancer named Nicolas Darvas who traded $25,000 into $2 million dollars in 18 months by using the stock market. In today’s terms that would be worth well over $20 million!
Even though this book, How I Made 2,000,000 in the Stock Market, was written back in the 60's the simple principles and techniques remain valid today - and they continue to be used successfully.
There is no secret here and there is certainly no need to pay thousands of dollars for this information. Darvas identified a naturally occurring pattern caused by normal human emotion. He then followed along, riding the trends, repeating the process, and making millions of dollars doing so.
Using watchlists cuts through the noise to find high momentum stocks and ride the same pattern as Darvas did over 50 years ago.
If there is any secret to this method it would be: cut your losses and let your profits run. This principle has been profitable for decades and continues to be so today. This was fully discussed in our recent article How Profits Are Generated.
My Own "AH-HA" Moment That Took 18,000 Hours
Back in the late 80's and early 90's, well before I'd heard of Nicolas Darvas, I had been tinkering with basic trading techniques, namely moving average crossovers. But one day I came across a book called Pattern Probability Strategy (PPS Trading System) by Curtis Arnold^ and I had my very own 'light bulb' moment.
His methods resonated and made complete sense.
Like Darvas, Arnold explored a variety of low risk chart patterns but then he mathematically tested them over an extended period of time whilst compiling extensive data on the performance of each. For the following 18 months I spent over 2 hours a day, 7 days a week, taking each of his patterns and tested them manually across global futures markets. I’ve continually tested the strategy ever since. Doing this by hand allowed me to define certain traits and characteristics of each, as well as refining entries and exits to suit my own personality.
Here's a simple weekly routine I like to follow:
(1) I review the stocks on the watchlists,
(2) I align them with the broader market trend, then
(3) Find low risk opportunities in the direction of the prevailing trend.
Here's a list of patterns from my own Playbook:
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